SPH REIT's Paragon Mall unfazed by Orchard Road's shopping belt boost

Impact is predicted to be minimal.

According to Nomura, while they think there could be significant headwinds facing the retail property market in 2014F (sluggish retail sales, significant new supply), they believe that the new supply scheduled to be completed along the prime Orchard Road shopping belt in 2014F will be minimal and do not expect it to pose significant competition to SPHREIT’s Paragon Mall.

SPHREIT’s pipeline asset, The Seletar Mall, is expected by Jones Lang LaSalle (JLL) to be completed in 2014F and was 28% pre-committed as of October 2013.

Here's more from Nomura:

There is potential for SPHREIT to exercise the ROFR (Right of First Refusal) to acquire the asset upon its completion and this could add c.5% to distribution on our numbers, assuming entry yield of 5.5% and 75% debt financing at a WACC of 3.6%.

In addition, considering the apparent slow shopper traffic for malls along the Orchard Road shopping belt, we believe some landlords would consider refurbishing their malls to rejuvenate their assets and there is potential for Paragon Mall’s connectivity to be enhanced if its neighbouring malls were to announce any refurbishment.